Things Are Different Now

After a gloomy Wednesday, a strong report from Facebook (FB) brightened the mood considerably. Market players were chasing many stocks higher as many bulls were looking for their old friend, the V-shaped bounce.

Breadth was just OK, volume was tepid and momentum slowed as the day wound down, but the indices had good-sized gains. It is exactly the sort of setup that has paid off nicely for the bulls, but I have serious doubts about the ability of the market to keep running.

One of the big problems is that earnings simply have not been that good. Amazon (AMZN) posted a miss after the close and is trading down. Google (GOOG) is trading around flat after an OK report. Chipotle (CMG) looks to be punishing the shorts with its beat.

AMZN has missed revenue expectations eight of the last 10 quarters and it has not hurt it one bit, but as I keep writing, the market in 2014 is quite different and I don't look for it to be as forgiving. We needed very strong reports from AMZN and GOOG to keep the momentum generated by FB going, and it doesn't look like we have that.

For a long time it was wrong not to be bullish after a day like this, even though we are still technically broken and the action was little more than an oversold bounce. My feel is that we aren't going to go up as easily this time. In fact, futures have already moved back toward the lows of the day.

This is a market for trading, not for dogmatic bullishness. Things are different now. There are still plenty of opportunities, but we need to handle them differently than we did in the past.

Have a good evening. I'll see you tomorrow.

Jan. 30, 2014 | 1:39 PM EST

Bulls on Parade

But they had better not take today's action for granted.

After a dreary week of action, the market is now acting like it doesn't have a worry in the world. This is the sort of thing we saw all the time in 2013 and it usually led to more upside and a quick recovery. The bulls are already proclaiming that we have seen the lows and it is now clear sailing to the upside, but I'm not convinced yet.

One of the differences this time is that we have suffered more severe technical damage than we usually have in the past when we quickly recovered. This time we have very clear distribution, the breaking of key support levels and a failed bounce.

Another difference is that the market has lacked good upside momentum since the calendar changed. We have had some very good stock picking and pockets of momentum but the indices have done absolutely nothing. In the past, these quick recoveries usually came in the context of a pullback within a strong uptrend. That is not the case this time.

A third difference is that the news flow has been much more negative and we don't have a supportive Fed now. Good earnings from Facebook (FB) and a better-than-expected GDP number are the drivers today but they don't come close to offsetting all the poor earnings and weak economic news we have seen lately. If the bulls are going to really getting us running, they will need news. They could always count on the central bankers before and without them we are going to have a much choppier market.

I don't want to sound overly negative but I think it is important that we not be overconfident that a bounce like we are having today is going to lead to the same sort of action we had in 2013. Conditions have changed and I believe the market is going to have more normal ups and downs in the future.

One of the good things about this action is that it is keeping the focus on stock picking. If we find the right stocks we won't have to worry about the indices all that much.

The bulls are having a good time right now but they had better not take it for granted that this is going to play out like it did so often last year.

Jan. 30, 2014 | 10:29 AM EST

Buyers Are in a Frenzy

But I'm not too trusting of this action.

The strong report from Facebook (FB) had buyers in a frenzy this morning, which was is probably due in part to poor positioning after the ugly action yesterday. Market players were obviously caught by surprise with the strong FB report and they scrambled in the premarket to add long exposure.

Unfortunately for early chasers, this gap-up open is being used as an opportunity to make sales. Most everything I'm watching is off early highs. This is another good example of how the market action is shifting in 2014. Last year I'd expect gap-and-run action, but this year traders are fading strength for a change.

I'm not too trusting of this action, so I made a few sales. My biggest buy this morning was an addition to my Tesla (TSLA) position. It has a nice looking cup-and-handle pattern and it is trying to push through its pivot point a little over $182.

Another chart on my radar is Intercept Pharmaceuticals (ICPT), which is trading in a very narrow range as it consolidates the wild action from earlier this month. I'm watching to add to this but I am in no hurry.

There isn't much on my radar but if the indices hold on to gains, things should improve as the day progresses.

Jan. 30, 2014 | 8:12 AM EST

No More Quick Recoveries for This Market

With the Fed tapering QE, the negatives are starting to matter.

The secret of change is to focus all of your energy, not on fighting the old, but on building the new. --Socrates

On Wednesday the market experienced a couple interesting developments. I've been writing about the tendency of the market to produce V-shaped bounces for a very long time -- but Wednesday brought about a classic bounce failure. The move on Tuesday, which usually was the first step in a straight-up recovery, was completely wiped the next day. The dip-buyers were suddenly trapped and the momentum chasers will quickly stopped out.

The failed bounce represented an interesting change in character, and it probably goes hand-in-hand with the second development: The Federal Reserve doesn't matter much now that it has started to unwind its quantitative-easing program.

Since the bottom in March 2009, the key to the market has been one very simple adage: "Don't fight the Fed." If you have followed that advice and stuck with the market amid an accommodative Fed, you have done extremely well.

But after the Fed's move to increase tapering yesterday, the market reacted poorly. This a signal that the central bank won't be the market driver it once was. If the economy worsens and if the Fed backs off from tapering, that will change things -- but, as it stands now, the Fed wants to unwind QE and that means the market will other factors as catalysts for any move higher.

The big problem is that the Fed was the excuse that allowed us to overlook a plethora of negatives. We can't do that now, which is why lousy earnings and the emerging-market currency issues are pushing this market into a downtrend. Fundamental factors didn't matter when the Fed was running its printing press at full speed, but that has now changed.

This morning the bible of momentum investing, Investor's Business Daily, shifted its market bias to "market in correction." Almost every time that this publication has this in the past year or so, a bottom came very shortly thereafter -- the market never was able to gain any real downside momentum. The dip-buyers would jump in just when it looked as if the indices were on the brink of really falling apart.

But, so far in 2014, the market feels quite different, mainly due to the Fed's shifted monetary policy. The days of the quick and easy recovery are over.

Facebook (FB) is giving the market a good boost this morning after surprisingly strong mobile-advertising revenue. We have seen so few good reports like this that the market is relieved by the news. Will it be enough to trigger a bounce in the broader market, or will this turn into a company-specific event? Facebook is providing some coattails for Google (GOOG), Twitter (TWTR) and a few others, but it will be interesting to see how far it can go in boosting overall sentiment.

Again, now that the Fed is no longer bailing out the market, this remains a dangerous environment. We have to deal with it by making sure we manage positions well and not let losses grow.

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